Key Regulatory Topics: Weekly Update - 2 February 2018 – 8 February 2018

Allen & Overy LLP

Allen & Overy LLP


EC publishes notices on consequences of Brexit on banking and finance sectors

On 8 February, the EC published a new webpage containing a number of notices setting out the consequences of Brexit on banking and finance rules. The webpage links to notices relating to the following areas: (i) markets in financial instruments; (ii) banking and payment services; (iii) post-trade financial services; (iv) asset management; (v) CRAs; (vi) insurance and reinsurance; and (vii) statutory audit. The EC explains in each notice that, unless a ratified withdrawal agreement establishes another date; all EU primary and secondary law will cease to apply to the UK from 30 March 2019. The UK will then become a third country. Each note sets out the consequences of EU rules in the above areas no longer applying to the UK.

Read more

ECB statements on SSM work programme and banks' Brexit relocation planning

On 7 February, the ECB published introductory statements by Danièle Nouy, ECB Supervisory Board Chair, and Sabine Lautenschläger, ECB Supervisory Board Vice-Chair, at the annual press conference on ECB Banking Supervision. In the statements, Ms Nouy and Ms Lautenschläger set out details of the ECB's work programme for 2018 relating its role in the SSM, including: (i) NPLs - Ms Nouy states that the ECB will change the date on which the guidance applies to new NPLs and publish the final addendum in March; and (ii) internal models - the ECB intends to update its guide to internal models and will consult on the first chapter "in the coming months". This part of the guide is intended to clarify general topics such as the governance framework for, and the validation of, internal models. On Brexit, Ms Lautenschläger warns that banks should prepare for any outcome to the negotiations including the absence of a transition period. She states that any UK bank wishing to relocate to the eurozone should do so by the end of the second quarter of 2018 at the latest. Ms Lautenschläger also states that, depending on the outcome of negotiations on transition, the ECB may discuss with banks whether they could be given more time to implement their relocation plans. She warns that this option will only be available for banks that have already presented high-quality and credible plans for their "steady state situation". She emphasises the expectation that banks relocating to the Eurozone must remain in control of their own risks. This means that these banks should be able to produce complete and accurate data on booking models, hedging strategies and intragroup exposures.

Read more

HMT publishes letter on approach to publishing Brexit position paper on financial services

On 7 February, the HoC Treasury Committee published a letter from John Glen, Economic Secretary to the Treasury, to Nicky Morgan, Committee Chair, on the government's approach to the publication of a position paper on financial services. The letter was written in response to questions asked in Parliament by Ms Morgan on when, or whether, the government would publish a white paper, or a position paper, on financial services in light of Brexit. In the letter, Mr Glen does not directly answer the questions raised by Ms Morgan and gives no indication that the government does intend to publish a position paper on financial services. He states that negotiations are highly sensitive and the government must carefully consider the timing of any publications that could be used to undermine the UK's negotiating position. He also notes that the government has been able to publish its aims on some "cross-cutting questions" that are relevant to the financial services sector, such as the position paper on the exchange and protection of personal data published in August 2017.

Read more

EC publishes preparatory discussion slides on financial services

On 6 February, the EC published slides on services as part of the EU27's preparatory discussions on the framework for a future relationship with the UK. They were presented to the Council Working Party (Article 50) on 30 January. The slides incorporate specific sections on the considerations to be taken into account in negotiating the future relationship between the EU and the UK. In particular: (i) the treatment of services in the single market and during a transition period; (ii) services in EU trade policy; (iii) horizontal and regulatory issues in services; and (iv) financial services. The slides represent some of the most concrete information to date on the options under consideration by the EU27 for these important issues.

Read more

FCA publishes speech on Brexit proposes solutions to transitional issues

On 5 February, the FCA published a speech, the Future of the City, by Andrew Bailey, FCA Chief Executive, on the transition to Brexit and the future of the UK regulatory regime. Mr Bailey states that financial stability must come first as a common objective. Financial stability is, he suggests, best protected not only by co-ordinating rules and supervision, but also by preserving open financial markets. In his speech, Mr Bailey outlines how, in his view, it is possible to have open markets based on mutual recognition of regulatory standards and to assess the application of those standards to ensure broad equivalence. Mr Bailey identifies operational issues arising from Brexit that, if not tackled, will create financial stability risks and issues for both the UK and the EU, in particular around contract continuity. He points out that, while the FCA is working with the government to ensure that there is a functioning regulatory regime from day one by implementing the EU withdrawal Bill, legislation will not solve these operational issues. Mr Bailey suggests a co-ordinated solution which would involve: (i) the political authorities making a joint commitment, by the end of March 2018, to a well-defined implementation or transition period. A timely commitment to a transition period will allow regulators to get on and tackle these issues; and (ii) the respective regulators putting in place a MoU to give effect to a stable and orderly transition that would acknowledge that firms are planning for a transition period to be in place.

Read more


ESMA 2018 work programme for CRAs, TRs and third-country CCPs

On 8 February, ESMA published its 2017 annual report and 2018 work programme (ESMA80-199-153) relating to its supervision of CRAs, TRs and its monitoring of TC-CCPs. The document outlines the supervisory activities ESMA undertook in 2017 relating to CRAs and TRs, and outlines its main priorities for 2018. The document also outlines ESMA's activities relating to the monitoring of TC-CCPs in 2017 and going forward into 2018. In particular, ESMA has identified the following priorities for: (i) TR supervision - strategy and governance, focusing on TRs' governance structures and management quality; and (ii) supervision of CRAs - IT and internal controls with a particular focus on information and cyber security. In respect of both TRs and CRAs, ESMA will be focussing on a number of additional areas, including Brexit, fees charged by CRAs and TRs, the internal control framework, cloud computing and guidelines for periodic information. For TC-CCPs, ESMA has identified the following priorities: (i) assessment of the 15 pending applications for recognition as TC-CCPs; (ii) monitoring the potential risks TC-CCPs might introduce in the EU; (iii) monitoring the impact of Brexit on the third-country CCP regime; and (iv) anticipation of and readiness for the potential changes in the scope of ESMA's supervision of TC-CCPs following the current review of the applicable regulations.

Read more

ESMA publishes final report on CCP conflict of interest management guidelines under EMIR

On 7 February, ESMA published a final report (ESMA70-151-1094) on guidelines relating to the management by CCPs of conflicts of interest. CCPs are required under EMIR to have in place organisational arrangements and policies to prevent potential conflicts of interest and to solve them if those preventative measures are not sufficient. ESMA decided to develop guidelines on CCPs' management of conflicts of interests to: (i) clarify how CCPs should prevent or mitigate risks of conflicts of interest; and (ii) ensure a consistent implementation across CCPs. The guidelines set out the circumstances where conflicts of interests could arise and specify the organisational arrangements and procedures to be established, including where a CCP is part of a group structure.

The final report also contains feedback to ESMA's June 2017 consultation on the guidelines and highlights where ESMA has changed the proposed guidelines following the consultation. NCAs must notify ESMA whether they comply or intend to comply with the guidelines within two months of the date of publication by ESMA of the guidelines in all EU official languages.

Read more

BoE statements of commitment to market codes

On 6 February, the BoE published a press release announcing that it has issued statements of commitment to the FX global code, the UK money markets code and the global precious metals code (collectively the Codes). The statements of commitment are attached to the press release. By issuing the statements of commitment, the BoE is demonstrating that it is committed to adhering to the principles of the Codes when acting as a market participant in the relevant markets, and that its internal practices and processes are aligned with the principles of the Codes. The principles of the Codes are important in promoting the integrity and effective functioning of the respective markets. Six other central banks in the ESCB have simultaneously issued statements of commitment to the FX global code. The remaining ESCB central banks will do so by May.

Read more

ESMA updates Q&As on CSDR

On 6 February, ESMA published an updated version of its Q&As (ESMA70-708036281-2) on the implementation of CSDR. Four new Q&As have been added, relating to: (i) whether a CSD intending to provide data reporting services listed in Section D of Annex I to MiFID II as ancillary services should comply with the relevant requirements set out in MiFID II (General Q&A 1(b)); (ii) whether a CSD can share its risk monitoring committees with other entities of the same group (CSD Q&A 1(g)); (iii) whether risk monitoring committees of CSDs belonging to the same group can have identical memberships. A CSD must set up a risk monitoring committee under Article 48 of Delegated Regulation (EU) 2017/392 supplementing the CSDR with regard to RTS on authorisation, supervisory and operational requirements for central securities depositories (RTS on CSD Requirements) (CSD Q&A 1(h)); and (iv) whether TARGET2-Securities (T2S) qualifies as a critical service provider within the meaning of Article 68 of the RTS on CSD Requirements (CSD Q&A 6(e)).

Read more

ESMA updates Q&As on EMIR implementation

On 5 February, ESMA published an updated version of its Q&As (ESMA70-1861941480-52) on the implementation of EMIR. A new Q&A TR45 has been added regarding the timelines for TRs to provide data and to validate a request for access to data. The new Q&A addresses how TRs should comply with these timelines in the case of: (i) scheduled maintenance that impacts TR services related to authorities' access to data; and (ii) non-scheduled maintenance at the TR.

Read more

ESMA updates Q&As on Short Selling Regulation

On 5 February, ESMA published an updated version of its Q&As (ESMA70-145-408 version 4) on the implementation of SSR. The answer to Q&A 10.6 has been expanded to explain that rights to subscribe for new shares cannot be used to cover a short sale in accordance with Article 5(1)(e) of EC Implementing Regulation (EU) No 827/2012 where, at the time of entering into the short sale, there is uncertainty as to whether the new shares subscribed for will be available for settlement within the contractually agreed time frame.

Read more

ESMA updates Q&As on Benchmarks Regulation

On 5 February, ESMA published an updated version of its Q&As on the implementation of the Regulation on indices used in financial instruments and financial contracts or to measure the performance of investment funds (Regulation (EU) 2016/1011) the Benchmarks Regulation (ESMA70-145-11, version 5). Two new Q&As have been added, relating to: (i) commodity benchmarks: how the threshold in the exemption under Article 2(2)(g) of the Benchmarks Regulation should be calculated (Q&A 4.4); and (ii) the definition of a benchmark and investment funds: what types of investment funds are considered to be using an index for the purpose of "tracking the return of [an] index" (Q&A 5.3).

Read more

FCA consults on DEPP and EG changes to reflect implementation of Benchmarks Regulation

On 5 February, the FCA published a consultation paper (CP18/5) on proposed changes to its DEPP and EG to reflect the changes introduced by the EU Benchmarks Regulation and the FSMA (Benchmarks) Regulations 2018 (UK Implementing Regulations). Most of the provisions of the EU Benchmarks Regulation came into effect on 1 January 2018. The UK Implementing Regulations (not yet enforce) extend the FCA's powers over authorised persons for breaches of the EU Benchmarks Regulation. They give the FCA powers over certain unauthorised persons (Unauthorised Benchmarks Persons). Appendix 4 of CP18/5 contains a draft version of the Enforcement (EU Benchmarks Regulation) Instrument 2018, which contains the proposed text amending the FCA Handbook. Among other things, in CP18/5, the FCA proposes to: (i) provide for a decision-making procedure for determining applications for authorisation and registration of EU-based benchmark administrators; (ii) provide for a decision-making procedure for determining applications for the recognition of benchmark administrators located in third countries and endorsement of benchmarks provided by benchmark administrators located in a third country for use in the EU; and (iii) apply its existing penalty policy and decision-making procedure when exercising powers with respect to Unauthorised Benchmarks Persons. The FCA proposes to add a new chapter to EG to give effect to this approach. The deadline to respond to CP18/5 is 5 March. The FCA will consider the feedback received and intends to publish its final rules in a policy statement in March.

Read more

FSMA (Benchmarks) Regulations 2018 published

On 5 February, the FSMA (Benchmarks) Regulations 2018 (UK Regulations) were published, together with an explanatory memorandum. These UK Regulations relate to the UK implementation of the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds ((EU) 2016/1011) (EU Benchmarks Regulation). The UK Regulations were made and laid before Parliament on 5 February but are not yet in force. The UK Regulations amend section 22(1A) of FSMA to add a new regulated activity of administering a benchmark and insert a new article 63S into FSMA RAO specifying administering a benchmark as a specified activity. From 1 May 2020, the article 63S activity will be the only regulated activity relating to benchmarks. The existing transitional provisions concerning benchmarks in articles 63O to 63R of the RAO will be revoked on 1 May 2020. The UK Regulations: (i) designate the FCA as the UK competent authority for the purposes of the Benchmarks Regulation; (ii) permit the FCA to exercise powers over persons who are involved in the provision of a benchmark but are not benchmark administrators as defined in the Benchmarks Regulation; (iii) give the FCA the power impose requirements on persons requiring them to administer or contribute to a benchmark; (iv) make provision for the FCA to regulate benchmark administrators, including the recognition of third country administrators; (v) amend other secondary legislation, including the FSMA (Exemption) Order 2001 and the Consumer Credit (Disclosure of Information) Regulations 2010 to reflect the Benchmarks Regulation; and (vi) make a minor amendment to section 293 of FSMA relating to the implementation of the Cyber-security Directive.

Read more

ECON publishes draft report on proposed Regulation amending EMIR supervisory regime for EU and third-country CCPs

On 2 February, the EP’s Committee on ECON published its draft report (dated 31 January 2018) on the proposed Regulation amending the ESMA Regulation and EMIR with regard to the procedures and authorities involved for the authorisation of CCPs and the recognition of third-country CCPs. In the explanatory statement to the report, the rapporteur, Danuta Maria Hübner, highlights a number of issues, including comments on the EC’s proposed approach to recognition of third-country CCPs. She acknowledges that one of EMIR's major weaknesses is the regime allowing third-country CCPs recognised by ESMA, to provide clearing services in the EU. She welcomes the EC's proposals to address this weakness by classifying third-country CCPs depending on their systemic importance, and states that the proposal for the EC to deny recognition of a third-country CCP on the basis of how significant its activities are to the EU is a tool of last resort and should remain in place as an insurance measure to protect the financial stability of the EU. However, she believes that the process for denying recognition should be made more fact-based and evidence-based, and should offer more certainty for the market. Ms Hübner therefore proposes that the discretionary nature of the procedure for denying recognition to a third-country CCP should be mitigated by requiring ESMA and the central bank of issue to conduct a prior impact analysis and consider clear criteria.

Read more

Results of second ESMA EU-wide CCP stress test

On 2 February, ESMA published a report (ESMA70-151-1154) on the results of its second EU-wide stress test for CCPs, which was carried out in accordance with Article 21(6) of EMIR. The results of the stress test include that overall CCPs are resilient to common shocks and multiple defaults. No particular deficiency was found in the management of liquidity risks by CCPs. However, for the credit tests the use of harmonised shocks highlighted differences in resilience between CCPs. Where ESMA’s assessments show shortcomings in the resilience of one of more CCPs, it will issue recommendations. ESMA is currently considering whether any recommendation is needed and what form it should take. ESMA has also published a Q&A document (ESMA70-151-1179), which explains in more detail the overall scope of the stress test, the different scenarios, the methodologies applied and how the results should be read.

Read more

EMMI decides not to continue EONIA review

On 2 February, the EMMI published a document on the state of play of the review of EONIA. EMMI states that the data received indicated that interbanking lending activity captured by EONIA presents a fair degree of concentration, which may increase the influence of single contributors on the benchmark rate and the presence of geographical concentration. EMMI notes that these findings are in line with the findings of the ECB in their first public consultation on developing a euro unsecured overnight interest rate published in November 2017. EMMI has concluded that, if market conditions and dynamics remain unchanged, EONIA's compliance with the Benchmarks Regulation by January 2020 "cannot be warranted". On that basis it has decided that pursuing a thorough review of EONIA is no longer appropriate. EMMI states that EONIA may still be used as a reference rate until 31 December 2019 under the Benchmarks Regulation’s transitional provisions. After 1 January 2020, the provision and use of EONIA in existing contracts will only be permissible under the conditions set out in Article 51(4) of the Benchmarks Regulation.

Read more


Please see the ‘Other’ section for an update on the FCA’s recent letter on its powers and regulatory perimeter which referred to its powers in relation to redress schemes.

PRA publishes direction and modification by consent of fitness and propriety rules

On 8 February, the PRA published a direction relating to the obligation to obtain regulatory references set out in Rule 2.7 of the Fitness and Propriety Part of the PRA Rulebook in relation to employees being transferred as part of a RFTS. The PRA has also published a modification by consent (dated 2 February 2018) explaining the purpose of the modification. The modification will enable a firm not to request regulatory references from former employers outside a group that will become subject to the Ring-fenced Bodies part of the PRA Rulebook on 1 January 2019 (relevant group), when transferring large numbers of individuals as part of an RTFS. This modification by consent is only available in respect of an individuals who meet all of the following conditions: (i) is or will be performing a PRA senior management function, certification function or notified non-executive director function in a firm in the relevant group; (ii) is or will be performing a PRA senior management function, certification function or notified non-executive director function in a firm in the relevant group; and (iii) has been employed by an entity outside the relevant group in the six years preceding the date of the RTFS. The modification by consent is available until 31 August, or the date the relevant rule is amended or no longer applies to the firm (in whole or in part). If the PRA issues a direction, it will take effect on the date shown within it and will end on 7 March 2023.

Read more

FCA modification by consent of regulatory reference rules for employees transferred in ring-fencing

On 7 February, the FCA published a modification by consent relating to the obligation to obtain regulatory references set out in chapter 22 of SYSC, together with a webpage on the modification by consent. SYSC 22.2.1R requires certain firms to obtain a regulatory reference when seeking to appoint a person to perform a controlled function or to issue a certificate under the certification regime. The modification will enable a firm not to obtain a regulatory reference when either permitting or appointing an individual to perform a controlled function or issuing a certificate under the certification regime for an individual in relation to a specified significant-harm function where the following conditions are all satisfied: (i) an individual is transferring between two firms in the same group; (ii) there has been no significant change in the individual’s responsibilities; and (iii) the individual is transferring as part of a RFTS, provided that the transfer date is on or before 31 August. The FCA webpage sets out details on how firms can take advantage of the modification. The modification direction expires on 7 March 2023.

Read more


FCA and ICO joint update on GDPR

On 8 February, the FCA and the Information Commissioner's Office (ICO) published a joint update on GDPR. The update explains that firms have asked about their ability to comply with both the GDPR and the FCA's rules. It also explains that compliance with the GDPR is now a board level responsibility, and firms must be able to produce evidence to demonstrate the steps that they have taken to comply. The FCA and ICO believe the GDPR does not impose requirements that are incompatible with the rules in the FCA Handbook and that a number of requirements are common to both. The requirement to treat customers fairly is also central to both data protection law and the financial services regulatory framework. When it makes rules, the FCA takes into account how its requirements will affect the privacy interests of individuals such as firms' customers and employees. While the ICO will regulate the GDPR, the FCA will also consider compliance with the GDPR requirements under its rules, including the requirements in SYSC. As part of their obligations under SYSC, firms should establish, maintain and improve appropriate technology and cyber resilience systems and controls. The FCA and ICO recognise that there are still ongoing discussions to ensure specific details of the GDPR can be implemented consistently within the wider regulatory landscape and are working closely together in preparation for the GDPR.

Read more

CMA's banking rules come into force regarding new overdraft alerts

On 2 February, a rule change required by the CMA as part of its Retail Banking Investigation came into force. Banks must now set up an alert system to warn people before they slip into overdraft. This will help customers avoid unnecessary charges. Three other measures have also come into force today: (i) the Business Current Account (BCA) procedure which requires all BCA providers with more than 20,000 active BCAs to adopt a Standard Information Set (the standard information required by banks when deciding whether to approve an application to open a BCA); (ii) a new loan price and eligibility tools to cover all unsecured loans and standard tariff unsecured overdrafts up to £25,000; and (iii) the provision of transaction history remedy. Banks will now also have to provide personal and business customers who are closing their account with five years of transaction history, free of charge, unless they choose to opt out.

Read more


EP votes not to oppose inclusion of Tunisia, Sri Lanka and Trinidad and Tobago in list of high-risk third countries under MLD4

On 7 February, the EP announced that it has voted in plenary not to object to a Delegated Regulation amending Commission Delegated Regulation (EU) 2016/1675. The agenda for the plenary session indicates that MEPs were voting on a motion brought under Rule 105(3) of the Rules of Procedure of the EP. Rule 105(3) permits MEPs to table a motion for a resolution at a plenary session objecting to a delegated act. MEPs opposed to the inclusion of Sri Lanka, Trinidad and Tobago and Tunisia in the list of high-risk third countries did not achieve the 376-vote absolute majority needed.

Read more

HoC European Scrutiny Committee considers MLD5

On 6 February, the HoC European Scrutiny Committee published its twelfth report of the 2017-19 parliamentary session. Among other things, the report outlines the Committee's views of the proposed Directive to amend MLD4 (referred to as MLD5). Points of interest relating to MLD5 include the following: (i) although the date when most of MLD5 is due to take effect is after the UK's scheduled date of exit from the EU in March 2019, it now appears likely the government will agree to a post-Brexit transitional arrangement during which the UK would effectively stay in the single market. Subsequently, the Committee considers it likely that most, if not all, of MLD5 will have to be transposed in the UK as a matter of law; (ii) the likelihood that MLD5 will be applied in the UK has several important legal implications. These include whether it means that the government will have to invest in a centralised retrieval system for information on bank accounts. This would be a significant change to current practice, which involves the National Crime Agency accessing bank account information via credit reference agencies and individual banks; (iii) the Committee is disappointed that the exemption from enhanced due diligence for low-risk domestic politically exposed persons was not included in the final text of MLD5; and (iv) the government is broadly content with the final text of MLD5, and given its imminent adoption by the EP and the EU Council, the Committee clears it from scrutiny.

Read more

ESMA publishes final report on draft ITS on forms and procedures for co-operation under MAR

On 6 February, ESMA published its final report (ESMA70-145-398) on draft ITS on forms and procedures for co-operation under Articles 24 and 25 of MAR. The draft ITS aim to facilitate the communication between the EU authorities, agencies, entities and public bodies where the information that has been provided to them, further to a request for assistance, is intended to be used for purposes not stated in the request, but falling under MAR, or the Regulation on wholesale energy market integrity and transparency (Regulation 1227/2011) (REMIT). In particular, the draft ITS describe the specific procedures to be followed by ESMA and NCAs for making, acknowledging, processing and replying to requests for assistance as well as when unsolicited assistance is provided. They also describe ESMA's co-ordination and facilitation role referred to in Article 25 of MAR, particularly in cross-border investigations and inspections. The relevant forms to be used by NCAs and ESMA for the co-operation and exchange of information activities are set out in the annexes of the draft ITS. An accompanying press release states that the ITS have been submitted to the EC for endorsement. The EC has three months to decide whether to endorse them.

Read more

Home Office guidelines on the sharing of information between banks concerning suspicions of money laundering and terrorist financing

The Home Office has issued important guidelines on the sharing of information between banks concerning suspicions of money laundering and terrorist financing. The Criminal Finances Act 2017 made changes allowing more information sharing.

Read more


Please see the ‘Other’ section for an update on the FCA’s powers and regulatory perimeter which referred to the FCA’s regulation of cryptocurrencies.


AIFM (Amendment) Regulations 2018 published

On 5 February, the AIFM (Amendment) Regulations 2018 (SI 2018/134) (Amending Regulations) were published, together with an explanatory memorandum. The Amending Regulations amend the AIFM Regulations 2013 (SI 2013/1773) to reflect the application of the Regulation amending the EuVECA Regulation and the EUSEF Regulation. In particular, the Amending Regulations make: (i) minor changes to the procedures to be followed for applying to register as a manager of a EuSEF or of a EuVECA, and for the refusal and revocation of a registration; and (ii) provide for a registration of a EuSEF or a EuVECA by an authorised AIFM, and for the refusal and revocation of a registration. In the explanatory memorandum, HMT states that no consultation was made concerning the Amending Regulations on the grounds that they would not affect business beyond the impact already generated by Regulation (EU) 2017/1991. The Amending Regulations enter into force on 1 March, with the exception of regulation 4 (which concerns the amendment to article 63B of the RAO), which comes into force on 2 April.

Read more

EC publishes letter to ESMA on share cancellation under MMF Regulation

On 2 February, ESMA published a letter from Olivier Guersent, EC Director-General, DG FISMA, to Steven Maijoor, ESMA Chair, on the implementation of MMR. In the letter, the EC states that it agrees with ESMA's analysis that the practice of share cancellation is not compatible with the MMF Regulation. It calls on ESMA to take action to ensure the consistent application of the MMF Regulation, suggesting that ESMA could provide guidance to market participants to ensure converging supervisory approaches. In a press release on the letter, ESMA states that it is now assessing the consequences of the letter and considering possible next steps.

Read more


EP non-objection to proposal to delay application date for IDD and IDD Delegated Regulations

On 8 February, the EP published the text (P8_TA-PROV(2018)0028) of a resolution confirming its decision not to raise objections to the EC’s proposed Delegated Regulation (C(2017) 8681 final) to delay the application of two Delegated Regulations supplementing IDD. The EP instructs that its decision be forwarded to the EU Council and the EC. If the EU Council does not object to the EC's proposed Delegated Regulation, it will enter into force twenty days after its publication in the OJ. According to the applicable Parliament procedure file, the EP is due to vote on the proposed Directive to delay to the application of the IDD itself in its next plenary session from 28 February to 1 March.

Read more

PRA publishes policy statement on SIMR optimisations

On 7 February, the PRA published a policy statement on strengthening individual accountability in insurance: optimisations to the SIMR (PS1/18). In PS1/18, the PRA confirms that it will proceed with its proposed rule changes largely as consulted on in CP8/17. In particular, the PRA explains that: (i) it has changed the definition for the Head of Large Business Area function (SIMF6); (ii) the quantitative criterion proposed in CP8/17 that the business area has gross total assets of £10 billion or more, has been amended to a criterion that either the value of assets, or the amount of technical provisions, relating to that business area are £10 billion or more; (iii) it has updated SS35/15 to clarify its expectations on the implementation of the amendments to the SIMR; and (iv) it has amended SS35/15 to remove gender-based language and terminology, as proposed in its July 2017 consultation paper (CP14/17) on extending the SM&CR to insurers. Appendix 1 to PS18/17 contains the PRA Rulebook instrument making the relevant changes to its rules. Appendix 2 contains a revised version of SS35/15. Rules set out in PRA 2018/1 requiring insurers to have a diversity policy for their boards will come into force on 9 April. Rules implementing the optimisations to the SIMR will come into force 10 December (this is the date on which the extension of the SM&CR to insurers will come into effect). The PRA states that it intends to publish a policy statement in summer 2018 providing feedback to the responses received to CP14/17 and to its December 2017 consultation paper on the extension of the SM&CR to insurers.

Read more

EIOPA publishes paper on systemic risk and macro-prudential policy in insurance sector

On 6 February, EIOPA published its first paper on systemic risk and macro-prudential policy in the insurance sector. The paper aims to identify and analyse the sources of systemic risk in insurance. In particular, it outlines three potential sources of systemic risk: entity-based, activity-based and behaviour-based sources. It also sets out the most relevant lessons learned from the financial crisis and the banking sector. Among other things, the paper notes that: (i) insurance can potentially create or amplify systemic risk; (ii) special attention should be given to the systemic risk arising from certain activities or products; and (iii) there could be a risk of arbitrage if insurance is not included within the wider macro-prudential framework. In addition, the paper includes a proposal for a macro-prudential framework for insurance and defines specific operational objectives based on the sources of the systemic risk identified. EIOPA intends to publish a series of papers on systemic risk and macro-prudential policy in insurance in due course.

Read more

PRA consults on change to IDD commencement date

On 5 February, the PRA published a consultation paper (CP4/18) on amendments to the effective date of its rules relating to IDD. In CP4/18, the PRA sets out proposals for updates to the IDD-related rules in PS31/17 to be effective from 1 October, although minor non-IDD related changes will still be made on 23 February. The PRA is also consulting on proposals to include a question relating to a criminal records check in Short Form A for relevant authorised persons and to include four additional questions in the passporting notification forms relating to insurance intermediaries. The changes to the passporting forms are intended to align these forms with the FCA forms finalised by the FCA in PS18/1, published in January. The proposed amendments are set out in Appendix 1 to CP4/18 in a draft version of the PRA Rulebook: CRR Firms, Non CRR Firms, Solvency II Firms, Non Solvency II Firms: MIFID II Passporting and IDD Consequential Amendments Commencement Instrument 2018. Among other things, this instrument specifies that certain annexes in the PRA Rulebook instruments implementing the IDD will come into force on 1 October, rather than 23 February. The deadline for responses to CP4/18 is 12 February.

Read more

PRA publishes "Dear Chief Actuary" letter on general insurance actuarial function reports

On 5 February, the PRA published a "Dear Chief Actuary" letter on general insurance actuarial function reports (AFRs). In the letter, the PRA sets out its comments following its review of AFRs, identifying those areas where Solvency II requirements are not being met, providing details of emerging good practice and sharing observations on how actuarial functions can be more engaged with firms' boards and risk management. The letter's key messages are that firms' actuarial functions can enhance the contribution that they are making to their firms' systems of governance. In particular, actuarial functions should engage with boards so that they are seen as a key part of firms' systems of governance and produce AFRs for boards that get key messages across to support boards' decision-making. The PRA highlights a number of general concerns about firms' AFRs, noting that some AFRs: (i) did not clearly state an opinion and instead focused on process or stating what has been reviewed; (ii) did not clarify how much reliance the board can place on conclusions in the AFR; (iii) did not highlight recommendations and deficiencies clearly for the board (8); and (iv) did not cover the role the actuarial function plays in risk management. The letter also provides comments on the content of AFRs reviewed relating to technical provisions, opinions on the overall underwriting policy and the adequacy of reinsurance arrangements. The PRA intends for the letter to be part of an ongoing dialogue between it and the chief actuary community. It encourages chief actuaries to share the letter with their boards and welcomes thoughts and feedback.

Read more

Implementing Regulation on technical information for calculation of technical provisions and basic own funds for Q1 2018 reporting under Solvency II published in OJ

On 3 February, Commission Implementing Regulation (EU) 2018/165 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 31 December 2017 until 30 March under Solvency II (2009/138/EC) was published in the OJ. The recitals to the Implementing Regulation explain that, on 9 January, EIOPA provided the EC with the technical information related to end of December 2017 market data. The EC adopted the Implementing Regulation on 31 January. It entered into force on 4 February (the day after publication in the OJ).

Read more

HMT confirms delay to Insurance Distribution (Regulated Activities and Miscellaneous Amendments) Order 2018

On 2 February, HMT announced that it is delaying making the Insurance Distribution (Regulated Activities and Miscellaneous Amendments) Order 2018 until the outcome of the EC’s legislative proposal to delay the application date for the IDD to 1 October has been confirmed. HMT states that, once the Order comes into force, the FCA will be able to finalise its rules transposing the IDD. Firms will be required to comply with those rules from whatever date is ultimately agreed as the application date of the IDD. The FCA has also updated its webpage on PS18/1 to confirm that it will take this approach. HMT intends to provide a further update on the transposition of the IDD following the outcome of the legislative proposal.

Read more


ESMA updates MiFID II Q&As on transparency topics

On 7 February, ESMA published an updated version of its Q&As on transparency topics under MiFID II and MiFIR. ESMA has added two new Q&As on pre-trade transparency waivers: (i) Question 11: Are "pre-arranged" or "negotiated" transactions permitted for transactions in non-equity instruments and in particular for derivatives that are subject to the MiFIR trading obligation?; and (ii) Question 12: How should the minimum size of orders held in an order management facility of a trading venue pending disclosure be calculated for non-equity instruments?

Read more:


Please see the ‘Other’ section for an update on the FCA’s recent letter on its powers and regulatory perimeter which referred to unregulated mortgage purchasers.


ECB finalises user requirements for future RTGS services

On 2 February, the ECB published the user requirements documents relating to the future RTGS services. The documents cover: (i) central liquidity management; (ii) future RTGS services; (iii) shared services; and (iv) glossary.


DWP updates guidance on valuation of safeguarded benefits and the advice requirement

On 6 February, the DWP updated its non-statutory guidance for pension scheme trustees, administrators and providers concerning changes to the method for valuing benefits, including guaranteed annuity rates, for the purpose of identifying whether a member is required to seek financial advice. A new section has been added on valuing members' safeguarded benefits for these purposes, including best practice tips to help trustees prepare for the change and how to deal with member communications (paragraphs 1 to 11).

Read more

FCA publishes discussion paper on non-workplace pensions

On 2 February, the FCA published a discussion paper on non-workplace pensions (DP18/1). The FCA explains in DP18/1 that it is using "non-workplace pensions" as an umbrella term for individually arranged contract-based DC pensions, most commonly IPPs, SHPs and SIPPs. DP18/1 is aimed at firms that operate non-workplace pensions, other participants in related markets and consumers who have contributed to a non-workplace pension or plan to do so in the future. The FCA seeks to understand how the differences and similarities between the workplace and non-workplace markets affect competition and consumer outcomes. DP18/1 focuses on the following: (i) product complexity; (ii) the factors that may reduce consumers' motivation and ability to invest time and effort in decisions related to their pensions; (iii) whether consumers can identify and freely move to more competitive products; and (iv) fund choice and the use of defaults. The deadline to respond to DP18/1 is 27 April. After considering the feedback received, the FCA will send a data request to providers of non-workplace pensions, to establish an evidence base from which to test the existence and scale of any problems identified. It will also undertake qualitative consumer research, looking at levels of engagement by consumers of non-workplace pensions. Later in 2018, the FCA intends to publish a paper providing feedback on the themes arising from the responses to DP18/1 and the data collection. If the evidence demonstrates the existence of consumer harm, the FCA will consult on proposals to remedy this.

Read more


Please see the Capital Markets and Market Infrastructure section for an update on the results of second ESMA EU-wide CCP stress test and the Insurance section for an update on EIOPA’s paper on systemic risk and macro-prudential policy in insurance sector.

Delegated Regulation on RTS on materiality threshold for credit obligations past due published in OJ

On 6 February, Commission Delegated Regulation (EU) 2018/171 supplementing CRR with regard to RTS on the materiality threshold of credit obligations past due was published in the OJ. The Delegated Regulation was adopted by the EC on 19 October 2017. It will enter into force on 26 February 2018 (that is, twenty days after publication in the OJ), and will apply from 7 May.

Read more


Please see the Brexit section for an update on the ECB’s SSM work programme.


HMT publishes consultation on proposed changes to cash ratio deposit scheme

On 8 February, HMT published a consultation paper on proposed changes to the BoE’s CRD scheme. The consultation follows HMT’s review of the scheme, which was announced in December 2017. The current government review focused on the operation and suitability of the CRD scheme, taking into account the interests of the wider financial sector, the BoE’s customers and the taxpayer, as well as the need to ensure that the BoE’s policy costs are fully funded over the next CRD period. The consultation paper sets out the findings of that review and the amendments the government is considering to make to the CRD scheme. The consultation covers the following issues: (i) a proposal to move from a fixed ratio to a ratio that is indexed to yields on a portfolio of gilts and is calculated every six months. This is designed to increase the CRD ratio to address the shortfall in the BoE’s funding (over the last CRD period the scheme did not generate sufficient income to cover the cost of the BoE’s policy functions) and to make the scheme responsive to changes in gilt yields; (ii) technical aspects of the operation of the scheme that could be improved; and (iii) any other matters raised in the consultation document. The consultation closes on 9 March.

Read more

ESMA 2018 regulatory work programme

On 8 February, ESMA published its 2018 regulatory work programme (ESMA20-95-823). The regulatory work programme provides a detailed breakdown of the individual workstreams outlined in ESMA's 2018 work programme. The regulatory work programme covers various areas including the following initiatives: (i) EuSEF Regulation; (ii) EuVECA Regulation; (iii) EMIR; (iv) MiFID II; (v) MAR; (vi) SFTR; and (vii) the proposed Regulation establishing a framework for the recovery and resolution of CCPs.

Read more

ESMA supervisory convergence work programme for 2018

On 7 February, ESMA published its 2018 supervisory convergence work programme (2018 SCWP) (ESMA42-114-540). The 2018 SCWP sets out the different activities that ESMA will undertake in 2018 to enhance a consistent supervision of EU financial markets and expands on the 2017 supervisory convergence work programme by assessing the progress achieved. Although most priorities identified for 2017 remain relevant for 2018, new priorities have been identified to address the high impact of financial innovation and the need to foster supervisory convergence in the context of the UK’s decision to withdraw from the EU. The priority areas identified by ESMA for 2018 are: (i) ensuring that MiFID II and MiFIR are applied in a sound, efficient and consistent manner across the EU; (ii) improving data quality to ensure efficient reporting under various requirements set by EU legislation; (iii) ensuring supervisory convergence in the context of the UK's decision to withdraw from the EU; (iv) safeguarding the free movement of services in the EU through adequate investor protection in the context of cross-border provision of services; and (v) monitoring developments in financial innovation, particularly through the analysis of emerging and existing instruments, platforms and technology. ESMA will monitor the implementation of the 2018 SCWP, and the priorities may be readjusted depending on developments during 2018.

Read more

FCA publishes letter on powers and regulatory perimeter

On 6 February, the HoC Treasury Committee published a letter (dated 30 January 2018) from Andrew Bailey, FCA Chief Executive, to Nicky Morgan, HoC Treasury Committee Chair, relating to the FCA's powers and regulatory perimeter. In the letter, Mr Bailey sets out an overview of what the FCA regulates, the aim of regulation, the powers available to it and specific examples of areas where issues have arisen about the nature and extent of the FCA's role. Items of interest include: (i) cryptocurrencies - typically the issuing of, or trading in, a cryptocurrency will not involve an FCA regulated activity. However, trading, arranging or advising activities related to cryptocurrency derivatives can amount to regulated activities; (ii) unregulated mortgage purchasers - entities that acquire the ownership of or rights under regulated mortgage contracts do not need to be regulated as long as they employ an authorised third party to "administer" the mortgage contracts. This could expose consumers to harm if, for example, an unregulated entity were to charge higher interest rates to captive borrowers, fail to reduce rates in a falling market, or treat customers in arrears unfairly and (iii) the extent to which the FCA’s redress scheme benefits SMEs - the FCA has the power to make an industry-wide redress scheme under section 404 of FSMA, but incorporated businesses, including SMEs, are excluded from such redress schemes as these schemes are limited to "private persons".

Read more

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen & Overy LLP | Attorney Advertising

Written by:

Allen & Overy LLP

Allen & Overy LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.